California Executive
How to Craft an Investor-Friendly Business Plan
March 18, 2008
Canadian entrepreneur Duncan MacPherson admits that he got it all wrong when drafting his company’s business plan for meetings with potential investors. He says he tried too hard to dazzle them with data and focused only on the upside potential of the company, among other missteps.
“I was trying to raise money for my own company and I completely blew it,” says MacPherson, co-founder of Pareto Platform Inc., based in Kelowna, British Columbia, which sells Web-based software that helps small businesses organize tasks and resources.
In that first meeting with a potential venture investor, MacPherson says, his team failed to outline a meeting agenda, handed out thick and detailed copies of its business plan and did not address vulnerabilities in the plan. Instead, he now realizes, he should have guided the discussion with a simple agenda, pointed out weaknesses as well as strengths and handed out a brief business plan at the end of the meeting.
Fortunately, Pareto was able to raise enough cash from friends and family members and his business is now on stable financial footing.
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8. Address Vulnerabilities, Don’t Hide Them
Entrepreneurs become so used to evangelizing the merits of their business, that they often have difficulty admitting vulnerabilities and weaknesses, says MacPherson, who learned the hard way. Investors will kick the tires and check under the hood before committing a cent, so it is better to address weaknesses yourself, he says, as it shows honesty and a deep understanding of your organization.
“We spent way too much time trying to convince them of all the upside and spent no time talking about risks, downside, or competitive scenarios,” MacPherson says. “But it’s important to deal with things the way they are and not the way [we] want them to be.”
If there are weaknesses or vulnerabilities - every organization has them - any investment firm worth its salt will find them, sources all say. And if they find them first, then it does not reflect favorably on the company or the firm’s ability to trust its founders, MacPherson says.